You opened a restaurant’s menu intending to select a delicious salad, but you ordered the meat lover’s pizza instead. Why is that?
And why do millions of people pick up smoking, knowing that smoking is addictive and can cause lung cancer, COPD, and other chronic diseases?
Giving a member information and access to the right healthcare doesn’t mean they’ll make rational choices that are in their best interest. Every day, people make decisions that aren’t in their best interest—even when they know the right thing to do.
Understanding the laws of behavioral economics—or how and why people make irrational decisions—can be an influential tool in healthcare for encouraging healthy behavior and improving member outcomes.
The traditional, or classical, view of economics assumes that if people have access to the full breadth of information about a subject, they will make decisions that are in their own best interest.
But as you know, this isn’t necessarily true.
If it were, you’d never miss a whole week of exercise because you know the health benefits of regular physical activity. You’d never miss a dentist appointment—no matter how much you hate it— because you know how important oral health is.
The fact is: People don’t always act in their own best interest. People don’t always do the “right” thing, even if they know what the right thing is.
Behavioral economics differs from classical economic theory because it assumes that people make irrational decisions, but in predictable ways. That predictability allows us to understand the patterns and influences behind irrational decision-making and effectively intervene to stimulate positive and lasting behavior change.
Let’s review the 4 core principles of behavioral economics, along with some brief explanations of how they work.
The intent-behavior gap shows up in our lives often, even in the seemingly smallest decisions. For example, when you intend to wake up at 6 AM to workout, but decide to hit the snooze button instead, there’s a gap between your intent and your behavior. Similarly, people with diabetes may intend to check their blood sugar before every meal, but for various reasons, they don’t always do it.
As humans, we prefer instant gratification over delayed gratification. Present positive feelings are a stronger motivator for us than the potential of a positive feeling in the future. So we may choose to relax at home with another beer or glass of wine, rather than heading to the local pharmacy for a flu shot. We can immediately taste the beverage and feel satisfied, whereas the potential benefits of getting a flu shot (e.g., not getting the flu) are farther in the distance and less tangible.
People are twice as likely to make the necessary efforts to avoid losing something as they are to gain it. With loss aversion, we understand that people overvalue things they already possess because they feel ownership over it.
That’s why incentivizing certain health behaviors upfront—with the consequence of losing that incentive if behaviors aren’t completed—is a more powerful motivator than offering the incentive of gaining something at the end of behavior completion. (More on how this strategy is revolutionizing patient adherence further down!)
When people are given too many options, they are actually discouraged from making a choice at all. And even if there are just a few options, the way in which those options are presented can also affect the choice they make.
For example, if a person is told that a surgical procedure gives them an 80% chance of surviving for about 18 months, they perceive it differently than if they’re told that with the surgical procedure, there’s a 20% chance they will die within 18 months. If those options are crowded with several other options to consider, the individual may feel too overwhelmed to evaluate the options at all.
Behavioral economics drives several aspects of healthcare, from benefits to clinical care to public health and individual patient behaviors. Here’s a research-based example that demonstrates how behavioral economics affects patient decision-making.
In one study, 132 terminally ill patients were assigned to complete an advance directive. There were 3 different options the patients could receive. Each advance directive was mostly identical, but differed by the presence of a default option and the nature of that option:
Though 2 of the advance directive options had a type of end-of-life care preselected, patients had the option of rejecting the default option and selecting their own preference.
Seventy-seven percent of patients in the comfort-oriented group maintained their preselected choice, and 61% in the standard advance directive group opted for comfort-oriented care. However, only 43% in the life-extending group said no to the default choice and changed their selection to comfort-oriented care. Through these stats, there was a noticeable preference for comfort-oriented care, but the likelihood of a patient choosing it was influenced by the presence and nature of default options.
Here, we see choice architecture in action with results suggesting that preferences for something as important and personal as end-of-life care decision-making can be swayed based on what options are given and how.
Wellth is a digital care plan adherence tool that employs several key behavioral economics principles to improve patient outcomes. Using behavioral economics, Wellth increases adherence to medications and care plans—even in populations that are traditionally less engaged in their chronic disease management.
Wellth bridges the gap between intent and behavior. By offering financial incentives upfront, it creates present bias—an instant and tangible reward that acts as a strong force against patient non-adherence.
By giving a member ownership of this financial incentive upfront, before they even have the opportunity to complete their care plan-based tasks, members become averse to losing their incentive. Rather than lose a small percentage of incentive each day the task is missed, the member is motivated to complete their tasks.
By bridging the gap between intent and behavior through present bias and loss aversion, members using the Wellth app have seen significant results—including an 89% increase in medication adherence, a 45% reduction in readmissions, and a 92% decrease in avoidable ED utilization.
Together we can use knowledge about behavioral economics to influence patient outcomes resulting in healthier patient populations.
Ready to learn more about the key principles and how Wellth is using them to create sustainable health behavior change?